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Is It Time to Get Off the Bank of America Corp Bandwagon?

Will Ashworth

The past month has not been good for shareholders of Bank of America Corp (NYSE:BAC) with BAC stock down by 6.7% over the past 30 days through April 12. That’s double the losses experienced by JPMorgan Chase & Co. (NYSE:JPM) over the same period.

Has the shine come off BAC stock? Personally, I thought Bank of America stock had run out of gas in November stating:

“The banks have had a good run, but after two years of strong appreciation, it might be time to take some profits and look elsewhere in 2018. Now, I’m not suggesting you give up on BAC stock entirely, just that you reduce its weighting in your portfolio.”

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Up 14.8% since Nov. 13, the date I made the statement, BAC stock seriously outperformed the two exchange-traded funds options I suggested investors consider.

I don’t feel too bad about my recommendation because the Guggenheim S&P 500 Equal Weight Financials ETF (NYSEARCA:RYF), my preferred pick of the two ETFs because of its low fee, generated a 6.7% return over the same period, 300 basis points higher than the SPDR S&P 500 Trust (NYSEARCA:SPY).

Healthy Earnings

This is where the rubber meets the road.

Should I continue to urge readers to exercise caution when it comes to Bank of America stock despite BAC posting better-than-expected figures?

JPMorgan reported excellent first-quarter earnings Friday and its stock dropped more than 2% on the news. I didn’t think there was any question that BofA would report better-than-expected earnings given the trend, but that didn’t necessarily mean investors would buy BAC stock in Monday’s trading. Indeed, BAC is down 72 basis points as of this writing.

CNBC’s Jim Cramer believes bank stocks’ future valuations are going to be richer then they’ve been in the past, more like those afforded consumer products’ companies.

I’m not so sure that’s going to happen but certainly, JPMorgan’s 15% return on equity for the quarter (400 basis points higher than Q1 2017) is something to write home about.

InvestorPlace’s Nicolas Chahine likes JPMorgan calling it the cream of the crop.

“Fundamentally, JPM stock is not the cheapest of the banks but in absolute terms as still a bargain. It sells at an 18 price-to-earnings ratio and a 1.5 half times book,” Chahine wrote April 13. “Valuation this reasonable makes for a good base for higher prices in the future.”

A word of caution.

The Wall Street Journal is reporting that the banks have yet to see the tax cut translate into greater borrowing by corporations. I’m not so sure that’s a good thing for bank stocks in the long run because corporate debt is already at record levels. No need to push the envelope. I’d keep an eye on this if you own one or more bank stocks.

Should I Buy BAC Stock?

If you already own Bank of America, I’d hang on to it. If you don’t own BofA and want to buy a big bank stock, I’d go for JPM instead. It’s a better bank. Otherwise, what I said in November still holds true. Buy RY and let diversification protect you on the downside.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

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